BL - Corp. & Dir. - wrongful trading

Question 1

Who can bring a claim of Wrongful trading?

Answer 1

Liquidator or Administrator 💦

Question 2

Are there criminal sanctions for wrongful trading?

Answer 2

No

Question 3

What are the duties of directors in respect of wrongful trading?

Answer 3

• When directors become aware (or ought to become aware) that an insolvent liquidation/administration is inevitable,
• they are under a duty to minimise the potential losses to the company’s creditors.

Question 4

What if the directors fail in their duty in respect of wrongful trading?

Answer 4

The court can order the directors to contribute (as the court see proper) to the insolvent estate.
- Not punitive - contribution should only reflect the loss caused to the creditors.

Question 5

Is intent or dishonesty required to prove wrongful trading?

Answer 5

No

Question 6

Against whom can a claim for wrongful trading be brought?

Answer 6

Directors and shadow directors

Question 7

Is wrongful trading based on the P&L or the balance sheet?

Answer 7

Balance sheet - its about assets and debts not cashflow

Question 8

What must be shown to demonstrate that the directors failed in their duty in respect of wrongful trading?

Answer 8

the director in question:
- allowed the company to continue to trade
- during the period in which they knew or ought to have known that
- there was no reasonable prospect that the company would avoid going into insolvent liquidation or administration, and
- that the continued trading made the company’s position worse.

Question 9

What is the defence against wrongful trading?

Answer 9

the director took every step with a view to minimising the potential loss to the company’s creditors.

Question 10

What standard is applied when considering the ‘ought to have known’ element

Answer 10

reasonably diligent person, with the higher of:
- general knowledge of a director, or
- actual knowledge of the director